Dan, a busker who specialises in Beatles songs, peers with more than a little suspicion at the bright green note, before slipping it into his breast pocket. "Just on the off-chance it'll work," he says. "I'll try and swap it for a cup of tea later."

It certainly will work as long as Dan finds one of the rapidly rising number of cafes, pubs and restaurants that recognise the Bristol pound, a local currency launched this week to support independent traders, engender civic pride and perhaps nudge the ailing economy in this corner of south-west England in the right direction.

More than 300 businesses – including butchers, bakers, solicitors, plumbers, electricians, book stores, art galleries, a chimney sweep, supplier of firewood, even a pole dancing tutor – have signed up, making the Bristol pound the largest local currency in the UK.

The idea is simple: to encourage consumers to spend more of their money in the local independent shops that accept the one, five, 10 and 20 pound notes and stop money leaking out of the area to faceless multinationals, unknown shareholders or the discredited banking system.

The scheme is creating a buzz. New businesses are joining every day and consumers are queuing to exchange their sterling pounds for the Bristol equivalent (the rate is a simple-to-understand 1:1). Shops are planning discounts for customers who proffer the Bristol pound and some businesses considering paying employees partly in the local currency. The city council has said it will accept Bristol pounds as payment for business rates.

"The phone has been ringing off the hook," said Cieran Mundy, director of Bristol Pound, the community interest company that runs the scheme with the Bristol Credit Union. "We've had interest from across the globe, from the US, Russia, even China."

Mundy thinks the world is looking for new ways of doing business, of breaking the grip of huge corporations and banking giants. "This isn't going to solve the financial crisis but it might inspire others to create their own schemes aimed at improving things locally," he said.

Before the centralisation of the banking industry it was common for towns and cities to have their own currencies. In more recent times forward-thinking towns and communities including Totnes in Devon, Lewes in East Sussex and Brixton in south London, have launched their own pounds. But the Bristol's is being billed as bigger and more sophisticated.

The company (motto: Our City, Our Money) has made available £125,000 worth of the currency and thinks in excess of £500,000 will be in circulation by this time next year. Customers can pick up the notes at the credit union and other points across the city. Those with accounts at the credit union can also make payments via their mobile phones. The notes have holograms and other features just like "real notes". They are not legal tender – accepting the notes is voluntary.

Big business is taking an interest with one budget airline asking if it can get involved. Unsurprisingly, the Bristol Pound company is not keen. They cannot stop anyone accepting the Bristol pounds but will not encourage national or global companies to take part. It's all about local money for local people.

But does the scheme actually work? The Guardian exchanged £20 sterling for four crisp, beautifully-designed Bristol Pound fivers at the Bristol Credit Union in the Stokes Croft area of the city and went on a spending spree.

First port of call was the co-operative Cafe Kino a few doors down from the credit union, where barista Yoshino happily accepted one of the fivers for a bowl of soup and gave the change in Bristol one pound notes (plus sterling coins).

"I really like the idea," she said. "We've got a good local community of independent cafes and shops in Bristol. This seems a very good way of keeping the money within the city." Cafe Kino is already planning to trade with one of its main suppliers, Essential, using the Bristol pound.

The greasy spoon cafe a few doors down does not take the Bristol pound, nor does the amusement arcade. A hot dog seller simply shakes his head when offered a Bristol fiver. There are no signs saying the Bristol pound is accepted outside the various massage parlours in the area.

The People's Republic of Stokes Croft shop, whose specialities include Banksy greetings cards, have yet to join officially yet. But assistant Scott makes a phone call and a note is accepted for an anti-Tesco mug.

On Christmas Steps, closer to the city centre, art gallery owner Jenny Life is signed up and believes it will be popular with tourists as well as local people.

Across the way, Pete Snowman, who runs the Bristol Cider Shop, accepts the Bristol pound and suggests the success of the scheme thus far is a manifestation of a desire to live in a more sustainable, locally-focused way. "There's a danger it may just be a trendy thing to do for a bit. But with a bit of luck it could go from strength to strength and become a symbol of a new way of thinking about your local community. Let's hope so."